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Reporting Compensation from Related Organizations on Form 990

The majority of tax-exempt organizations need to file IRS Form 990 on an annual basis. The return provides an overview of an organization’s financial information, activities, and governance. There is also a section for the organization to present an overview of accomplishments during the year in order to justify and maintain its tax-exempt status.

Tax-exempt Organizations That Must File Form 990

In general, tax-exempt organizations with gross receipts of at least $200,000, or assets of $500,000 or more, must file Form 990. The return comprises multiple sections; we’ll examine PART VII, SECTION A, 1a., Column (E), which reports compensation from related organizations.

FORM 990 – PART VII, SECTION A., 1a., Column (E)

Compensation paid by related organization in the calendar year that ends within the filing organization’s fiscal year should be reported in Column E. Certain criteria with regard to control must be considered in determining the relationship between two organizations. For example, the following organizations (but not limited to) are considered related organization for labor unions:

  • Political Action Committee
  • Building Corps
  • Related Charities
  • International Union

These are important points to remember when completing Column E:

  • You must report W-2 (box 5) or 1099-MISC compensation from a related organization. This includes payments, rewards, and benefits, whereas other sections of Form 990 simply require salaries to be reported.
  • An exception applies when compensation from a related organization was less than $10,000 for the calendar year ending with or within the organization’s fiscal year. (This exception does not apply to compensation paid to a former director or trustee of the filing organization for services as a director or trustee.)
  • When an organization is related for only a portion of the year, Form 990 should report compensation received while it was actually related. An explanation must be provided in Schedule O.

Reasonable Effort When Reporting on Compensation on Form 990.

Tax-exempt organization should be aware that an organization filing Form 990 does not have to report compensation from a related organization if it is unable to obtain such information. The filing organization must have made a reasonable effort to obtain the information and be unable to estimate it. Reasonable effort might consist of an annual questionnaire distributed to current and former officers, directors, trustees, key employees, and highest compensated employees. A description of the organization’s effort must be provided in Schedule O.

Does your tax-exempt organization need assistance filing Form 990? Miller Kaplan Arase LLP is a full service accounting firm with extensive experience assisting tax-exempt organizations and their boards in meeting their fiduciary responsibilities.

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